Five years ago, Louisiana's economic prospects were as murky as an Acadiana swamp. Ravaged by a plunge in energy prices in the 1980s, the state emerged as a sobering case study on the dangers of being overly reliant on one industry, in this case oil and gas. Local economies languished, businesses floundered and the state's four largest banks-once-stellar performers-found themselves mired in a pool of bad loans like pelicans trapped in an oil spill. One-third of the state's financial institutions perished from 1982 to 1992.

The perennial star of Louisiana banking, New Orleans-based Hibernia Corp., teetered toward the brink of failure thanks to heavy losses on real-estate and leveraged buyout loans. Marketing innovator Premier Bancorp mortgaged its independence to Columbus, OH-based Banc One Corp. for a $65-million capital note and an option to buy the Baton Rouge-based bank in four years. Even the blue-blooded Whitney Holding Corp., the Crescent City's conservative, high-brow bank, was oozing red ink. The only big player to escape the debacle without an annual loss or dividend cut was New Orleans-based First Commerce Corp.

"To comprehend the scope of Louisiana's problems, you have to keep in mind that as energy prices fell, the state's non-agricultural wage and salary employment dropped 9% from 1981 to 1987," says Loren Scott, chairman of Louisiana State University's Department of Economics and a consultant. "Compare that to the nation's 7.5% drop from 1929 to 1935-otherwise known as The Great Depression Period-and I think you get the picture."

Today, the horror of Louisiana's economic collapse is largely behind it and the state has emerged as a classic Darwinian survivor. It has recouped the 147,000 jobs it lost in the 1981-1987 recession and will add some more, according to LSU. Employment is growing in excess of 4% a year, according to Louisiana's Bureau of Labor Statistics. But unlike previous energy-related business cycles, the bulk of current activity is occurring in less-volatile services and trade sectors, including textile manufacturing and transportation equipment. Gaming has contributed 14,600 jobs in the past two years, but public- and private-sector officials aren't betting the state's future on it. Overall, Louisiana expects to add 93,000 new jobs in the next two years, says LSU's Scott. And by 1997, Louisiana will have recovered nearly all of the population it lost from 1982 to 1987.

Likewise, the four major banks have rebounded with respectable, and in some instances superior, earnings. Acquisitions, investments in technology and product development initiatives have strengthened their competitive capabilities. Asset quality has improved and reserve levels appear to be more than adequate, according to analysts.

But perhaps the greatest vote of confidence in Louisiana's comeback is Banc One's decision to exercise its option to buy $5.5-billion-asset Premier. Announced in July, the deal is expected to close by year-end. Banc One even upped its original offer from about 1.25 times book value to about 1.5, based on Premier's improved credit quality and performance-although even this was probably a steal in a red hot merger market where banks were selling at two times book or better. In 1994, Premier earned $69.5 million and its 1.39% return on assets and 17.63% return on equity placed it among the best-performing banks in its peer group. Its third quarter results included an ROA of 1.34% and ROE of 15.2%%

While Banc One's agreement and the year's rash of big mergers ignited speculative interest in Louisiana's remaining banks, an interesting and perhaps telling fact remains. Despite the positive outlook, superregionals from outside the state aren't rushing into Louisiana, even though a few smaller banks from neighboring states have entered the market.

The overriding question is, why not?

"For most superregionals, there's still a long line of alternatives and Louisiana, with its recent history of economic doldrums, comes way down the list," says John Mason, an Interstate-Johnson Lane senior vice president and analyst in Atlanta. "Louisiana is charming and the food is terrific, but there's a big difference between economic recovery and economic growth. There are still a lot of viable targets in North Carolina, Virginia and a few smaller things in Georgia that may be more appealing."

While logical suitors like Charlotte's First Union Corp. and NationsBank Corp. declined to comment on Louisiana's potential, analysts and industry executives have provided some conclusions.

"It's not so much that superregionals are avoiding Louisiana as it is that Louisiana isn't as high up on their priority lists," says Woody Briggs, a senior vice president with Chaffe & Associates in New Orleans.

"Louisiana is still a relatively unconsolidated market, although First Commerce and Hibernia have been particularly active intrastate acquirers in recent years," notes analyst Michael Granger with Fox-Pitt Kelton in New York. "The fact that Louisiana is still in a consolidation mode may be a factor."

Given recent history, this would ring true, as many superregionals have focused on targets with double-digit assets. In an unrelated interview earlier this year, NationsBank chief executive officer Hugh McColl acknowledged as much when he noted that the fixed costs of merging a $2-billion-dollar bank are largely comparable to absorbing much-larger entities. Accordingly, he likes banks to bulk up before he's interested.

There are other factors as well. Louisiana's urban population centers are small in comparison to major cities in Texas, Florida and the Carolinas-not to mention the northeast or upper Midwest. The state's largest metropolitan area-New Orleans-is home to 1.3 million. Second- and third-place markets Baton Rouge and Shreveport drop to around 553,000 and 376,000 people respectively. Consider the fact that Texas packs mega-cities like Dallas-Fort Worth, Houston, Austin and San Antonio in one punch and it's easy to see why Texas has appeared on superregionals' "A" list. Per capita income represents another source of consternation as well. Though steadily improving, Louisiana's PCI generally earns a forty-something ranking out of 50 states.

Beyond statistics, Louisiana's societal culture-or at least outsiders' perception of it-represents another hurdle. Some middle-level and senior-level executives complain that the New Orleans social-set is a little bit too exclusive for its own good. Moreover, many non-residents find that Louisiana's public-sector leadership leaves much to be desired in terms of both professionalism and its attitude toward business.

Nonetheless, several analysts are truly bullish on the prospects for Louisiana's remaining independent big banks. And it's ironic that Banc One's foray into the market had relatively little to do with Louisiana per se. It was more of a family affair-as in McCoy-and involved the tale of two banking brothers. Before it's over, the McCoys may end up having a significant impact on Louisiana's three remaining independents-Whitney, Hibernia and First Commerce-and perhaps even altering the destiny of one of them.

The brothers are John G. McCoy-former CEO at Banc One and father of the current CEO, John B. McCoy-and Charles "Chuck" McCoy, who was seven years younger. Chuck went to work for the family bank-and that's pretty much what the old City National Bank and Trust of Columbus, Banc One's predecessor, was in those days-after he graduated from college. Chuck later struck out on his own, ending up at Louisiana National Bank in Baton Rouge. Years later he would become CEO, assemble an extensive in-state franchise and rename the bank Premier. He also was a mentor to Premier's present CEO, G. Lee Griffin.

Back up north in Ohio, John G. had been running Banc One for many years after their father, John H., had retired. Over the years, the brothers shared ideas, as well as their similar philosophies in running a bank.

Despite an enviable franchise in key Louisiana markets, Premier became unprofitable in 1986 when oil prices dropped 47% in the year's first quarter alone. Losses continued, culminating with 1989's $106-million hit. Though the bank fared better and returned to profitability in 1990, the time had come for Premier to assess its options. Current Banc One CEO John B. McCoy-Chuck's nephew-was heading the company by then, and Premier turned to it for help. The assistance arrived in March 1992 in the form of a $65-million capital note. In return, Banc One would receive a four-year option to buy the bank outright.

To both organizations' credit, the arrangement has clicked. Griffin and Banc One spokesman John Russell attribute its success to two factors: mutual trust in each organization's management, and a shared value system.

"If it was another bank that asked the same thing at the time, I don't know that we would have done this type of deal," concedes Russell. "I don't think it was so much of an effort on our part to get into Louisiana as it was our comfort level and knowledge of the managers and culture of Premier Bancorp. We had confidence in their management and their retail and small-business emphasis was a natural fit for us."

"In addition to our retail and small-business orientations, we have both been involved in the development of innovative products," Griffin notes. "They've been able to invest in technology that we couldn't even touch, and looking ahead, this will be to our advantage as we attempt to target markets and consumer segments with even greater precision."

Banc One's emphasis on profitability analysis via sophisticated management information systems will also benefit Premier. Says Griffin, "Their software will enable us to bring total customer relationships into even greater focus so that we can reward customers that possess a large share-of-wallet with us." And Banc One's much larger balance sheet will allow Premier to compete for much bigger corporate credits.

While Premier's competitors recognize Banc One's formidable marketing muscle, the CEOs at Hibernia, First Commerce and Whitney say they've already braced themselves for the transition.

"Banc One is an excellent marketer, but one of the encouraging things for the other major Louisiana banks is that Banc One is a rational competitor," says Tom Theurkauf, a Keefe Bruyette & Woods senior vice president. In other words, it's unlikely that Banc One will try to become Louisiana's price leader.

But one reason Banc One's presence in Louisiana is being scrutinized so closely is that Premier lacks a significant presence in the state's largest market-New Orleans. Some analysts and industry pundits claim that Premier will need more muscle in the Big Easy, with Whitney and Hibernia being touted as likely acquisition targets. While Griffin and Russell acknowledge the need to build Banc One's market share in New Orleans, they decline to offer any specifics about how.

But one obvious strategy is to seize New Orleans by acquisition. Although First Commerce commands the lead in market deposits, the most commonly-named targets are Hibernia and Whitney, which rank second and third.

The $7-billion-asset Hibernia made nothing short of a Herculean recovery following 1990, 1991 and 1992 losses of $17.7 million, $160.7 million and $36.3 million. It possesses an enviable franchise, not only in New Orleans but statewide as well. Under the leadership of CEO Stephen Hansel, a former chief financial officer at Barnett Banks Inc. who arrived in 1992, Hibernia fought back after its fall from grace under longtime CEO Martin Miler.

Hansel recapitalized the bank and renewed its emphasis on asset quality, then focused on strategic business development initiatives. He made sorely needed investments in technology, beefing up management-information and distribution systems. Since the fall of 1993, Hibernia has embarked on an acquisition spree which has added about $2 billion in assets to the company. Its performance has improved as well. Net income for 1994 was $84.7 million, a 33% jump from 1993. Its ROA last year was 1.35% and ROE 15.63%, respectable tallies both. The third quarter ROA was 1.92%, and the ROE 20.5%.

While the bank is frequently cited for its takeover potential, Hansel likes keeping his options open. "I'm focused on making decisions that benefit the interests of my shareholders," Hansel says. "What that means at this point is up in the air. It may mean operating a great company independently for many, many years. Or it may mean something else. I just don't know."

While Hansel's stock options would make him a very wealthy man should Hibernia sell, it is widely acknowledged that he genuinely relishes the rigors of being a CEO. "I'm really not in it for the money," Hansel says. "I've wanted to run a company since I was 20. I'm doing that now and enjoying every minute of it."

Likewise, Whitney's CEO William Marks, who came to the $3-billion-asset bank in 1990 by way of Mobile in neighboring Alabama, dismisses much of the takeover-related talk. A polished, gentlemanly executive, Marks has been busy dragging fusty old Whitney into the technologically modern 1990s.

"While credit quality was a considerable hurdle, we also had several internal challenges related to technology and the development of a sales culture," Marks notes. "The bank didn't change during the '80s when the industry was undergoing a rapid transformation. Subsequently, we had some major cultural and systems-related issues to address."

So unique was Whitney's old-line posture that when the bank deployed ATMs in New Orleans in 1990, it made front-page news in the city's local daily, The Times-Picayune.

Analysts who have covered Whitney extensively, like J.C. Bradford & Co.'s Henry Coffey, praise Marks' capabilities. Under his leadership, Whitney dug its way out from under losses in 1989, 1990 and 1991. In 1994, the bank posted glittering earnings: ROA of 1.79% and ROE of 19.13%. The bank's third quarter performance was also solid: an ROA of 2.03% and an 18.8% ROEE.

Whitney also has invested in technology and customer service-amenities, and expanded into nearby Mobile-a city Marks knows well.

Nonetheless, Coffey and others believe Whitney may be most vulnerable. "Bill Marks is a talented and seasoned professional who came up the ranks by way of a Wachovia credit culture," Coffey asserts. "However, the previous CEO put that bank so far behind the times that there's just so much even a Bill Marks can do. I think Whitney is in the position of being the most likely to sell first."

Morgan Keegan & Co. analyst Christopher Kelley concurs. In a September 1995 research report, Kelly notes that "With Banc One's nominal presence in the New Orleans market, many believe that the easiest and most direct entry would be the purchase of Whitney."

While Coffey recommends New Orleans-based First Commerce on the strength of its fundamentals, he believes the $7.4-billion asset bank may be resistant to a takeover. Noting that banks tend to sell when they run out of steam, he asserts that First Commerce has plenty going for it.

Despite the company's $28 million in securities losses last year-it decided to classify all of its portfolio as "available for sale" instead of "held to maturity" in response to accounting rule changes-the company and CEO Ian Arnof get high grades from analysts. With its strict underwriting standards, First Commerce was quick to recognize the severity of the 1980s' recession, and acted quickly to maintain asset quality. Its heavy retail orientation and desirable credit card franchise helped maintain the company's consistent profitability during Louisiana's darkest economic days. When asked of his proudest accomplishment during the state's crisis, Arnof says it was the company's ability to "attract and retain good people during a tough economy."

Through an aggressive acquisition program in recent years, First Commerce has gained market dominance in major markets throughout the state in addition to its hometown of New Orleans. The company also enjoys the reputation of integrating acquisitions successfully. Arnof, who came to First Commerce in the late 1970s from Memphis-based First Tennessee Corp. knows a thing or two about numbers, having served as FCC's chief financial officer prior to his appointment as CEO.

Undergoing an extensive reengineering process, the bank is investing heavily in technology in order to generate more surgically-precise marketing and profitability information. Despite the securities losses, First Commerce reported net income last year of $63.7 million, with a .99% ROA and an ROE of 13.48%. Its third quarter ROA was 1.33% and it's ROE was 16.42%.

While some analysts say that First Commerce would be most resistant to takeover talks, Arnof doesn't show his hand.

"To me, the fundamentals of developing an independently viable bank or an attractive takeover are no different," he asserts. "Providing superior returns to shareholders while providing customers with above-average products and services that make sense for their needs is at the core of what we do."

Whether Banc One's entrance into the Louisiana market will spur additional superregional interest in the bayou remains to be seen. But if the merger boom of 1995 showed anything, good banks cannot hide their light under a basket for long. And Louisiana is once again home to some pretty good banks.

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